A foreign buyer has decided to stop working with their OEM supplier located in China because of horrible performance and poor service. But that supplier still has the buyer’s plastic injection molds in their factory.
The buyer is wondering how to get the molds back and end the relationship with a clean cut. But it is a high-stakes move.
To the supplier, once a buyer calls for the molds, it means the relationship is irremediably broken, and there is no longer an incentive to play nice or to cooperate in any way. As the buyer put it, he has one chance to get it right.
“We want to transfer all our mold tools from our current supplier to a new one without the risk of jeopardizing anything! What can we do?”
Here is the situation:
- The buyer did pay for the tooling, and there was no talk of amortizing a portion of the cost of the tooling in the production unit cost. So, the buyer assumes he paid the cost of the tooling in full. However, some savvy Chinese suppliers know how to counter this – they say the buyer paid for the work of cutting the block of steel but did not pay for the intellectual property of the mold design, so that’s a risk.
- The buyer does have a written agreement with the current supplier, and that agreement does mention the buyer owns the tooling. But again, no mention of all the IP around it, so there is a risk. Also, there is serious concern about the ability to enforce that agreement in China (a lawyer would need to be consulted) and about the cost of doing so.
The two main questions are:
1. How to break the news to the supplier?
There are basically three common situations here.
- If the buyer has been a “pain in the neck” for a long time and keeps pushing the supplier to fix their past issues etc., the supplier might actually be happy to get rid of that customer. Easy to deal with.
- If the supplier cares about their reputation, they will not push back too hard against a clean cut, and they will probably not play games. That’s generally the case of foreign-owned factories in China, but it can also play out with local companies, especially when they sell only in a tight industry and they know their customers know each other. In both cases (a and b), the supplier might be tempted to over-charge for whatever they can, but hopefully not in an over-the-top manner.
- The case where the supplier values the ongoing business and is not worried about its reputation is the most concerning. It is usually better to invoke a higher authority, just like Chinese salespeople when they say “sorry, it is company policy” or “my boss would never allow for that”.One approach might be to mention that a new investor requests that production is transferred to, say, Vietnam. And the investor requests that the tooling be delivered to a warehouse in China for inspection before the transfer. That’s an example – it should be easy to come up with such an excuse that looks relatively credible.
2. Assuming the supplier has accepted to give the molds back, what are the next steps?
The current supplier will probably do nothing to fix issues on the molds, and will probably not arrange for people to move the tooling around to make an inspector’s job possible, so it’s usually better to just get it picked up.
If a new supplier has already been chosen, then you can rely on them for picking the tooling up… however, they will know who your original supplier was, and that original supplier will also know (and they might change their mind!). Another company could arrange for pickup & transportation if needed.
Then, your new supplier will have to do some shots and confirm in a formal manner that the molds are acceptable with low scrap/waste. And you should follow the usual steps of validating that a new product (or, in this case, an existing product in a new factory) is ready for production.
How Can Sofeast Help You?
If you haven’t selected a new supplier yet or need a third party to collect/receive and store the molds so your current supplier is insulated from your new one and your supply chain information stays secret, Sofeast can help you. The usual approach we follow includes:
- Arranging the pickup
- Receipt at our facility + moving the tooling around to support the inspector
- Tooling inspection
- Storage
- Electric forklift usage
- Project management to keep it all well coordinated
This is all included in a solution we provide that you can purchase: Tooling Custody & Management (in China) – take a look and request a quotation for your situation if you’d like one.
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Do you find yourself in a difficult situation with a Chinese supplier? Let us know and we might answer your questions in a post like this! Contact us here.
Other helpful content
You may also find these posts and podcast episodes helpful in this case:
- Read this FREE eBook: How To Find A Manufacturer In China: 10 Verification Steps
- Vetting Chinese suppliers podcast seriess – These episodes cover the basics and best practices that you need to assess a potential new supplier and get the peace of mind you need that they’re a good fit for you. It includes weeding out bad fits, auditing, evaluating their capabilities, due diligence, and more.
- How To Find Trustworthy Chinese Suppliers?
- If all else fails and you need to switch to a new supplier, read this FREE eBook: How To Switch To A New Chinese Manufacturer And/Or Develop A Backup Supplier
You can also read our entire ongoing series of posts about disputes with Chinese suppliers here.
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